Loyola of Los Angeles Loyola of Los Angeles

Entertainment Law Review Entertainment Law Review

Volume 7 Number 1 Article 2

1-1-1987

New Remedial Developments in the Enforcement of Personal New Remedial Developments in the Enforcement of Personal

Service Contracts for the Entertainment and Sports Industries: Service Contracts for the Entertainment and Sports Industries:

The Rise of Tortious Bad Faith Breach of Contract and the Fall of The Rise of Tortious Bad Faith Breach of Contract and the Fall of

the Speculative Damage Defense the Speculative Damage Defense

Kevin W. Yeam

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Recommended Citation Recommended Citation Kevin W. Yeam, New Remedial Developments in the Enforcement of Personal Service Contracts for the Entertainment and Sports Industries: The Rise of Tortious Bad Faith Breach of Contract and the Fall of the Speculative Damage Defense, 7 Loy. L.A. Ent. L. Rev. 27 (1987). Available at: https://digitalcommons.lmu.edu/elr/vol7/iss1/2

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NEW REMEDIAL DEVELOPMENTS IN THEENFORCEMENT OF PERSONAL SERVICE

CONTRACTS FOR THE ENTERTAINMENT ANDSPORTS INDUSTRIES: THE RISE OFTORTIOUS BAD FAITH BREACH OF

CONTRACT AND THE FALL OF THESPECULATIVE DAMAGE DEFENSE

Kevin W Yeam *

I. THE SCENARIOS

Samantha Starlet walks off the set during principal photographystating she will not perform in this film until she gets better billing andmore money. Lionel Backer refuses to play this season unless the teamrenegotiates his contract. The rock band, Heavy Mentals, delivers onlythree records out of a promised five during its seven year deal with itsrecord company.

These scenarios apply equally in the areas of television production,theater and book publishing. The talent have all signed personal servicecontracts with their employers and are in breach thereof for willfully andintentionally withholding their promised services. What are the legal op-tions available against the breaching performer(s)?

II. INTRODUCTION

Personal service contracts are an inherent part of the entertainmentand sports industries. Performers and other talent contract to makerecords, write books, play a sport and/or appear on film, tape or on stagein exchange for compensation. Unfortunately, it is very common for per-formers to refuse to satisfy the terms and conditions of their contracts.In these situations, there are three principal remedies available to enforcethe personal service contracts against the breaching talent. They are:

* Kevin W. Yearn works at Hartman, Morton & Schlegel in Pasadena, California. Mr.

Yeam would like to thank Angela M. Rossi, Donald E. Biederman, and Mark Scarberry fortheir assistance and insight.

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(1) an injunction; (2) contract damages; and (3) tortious breach of con-tract damages.

The purpose of this paper is to provide the entertainment and sportsmanagement counsel with a practicum of alternative remedies for en-forcement of personal service contracts against performers who willfullyrefuse to perform all or part of their personal service contracts.

Specifically, the analysis shall discuss the basic contract remediesapplicable to personal service contracts including an overview of the areaof injunctive relief and the recent trend to allow recovery of damageshereto considered speculative. Additionally, this paper examines thecourts' expansion of the theory of tortious bad faith breach of contractand its potential application in the entertainment industry.

A. Background.

Traditionally, courts have held contract damage recoveries against abreaching performer to be too speculative.' Further, a personal servicecontract is not specifically enforceable.2 Therefore, the only remedy his-torically available to management is a negative injunction.3 However,courts have shown some reluctance to award such relief.4

Because of the lack of remedies available and the inherent uncer-tainty involved in entertainment law, management is oftentimes forced torenegotiate a personal service contract with the breaching talent despitehaving a legal and binding agreement. However, recent developmentshave expanded the well-settled areas of damages and tortious breach ofcontract. These new principles should provide management with alter-native remedies against the breaching talent and could potentially bal-ance the power between management and the talent.

1. See generally J. B. Lippincott Co. v. Lasher, 430 F. Supp. 993 (S.D.N.Y. 1977); Wash-ington Capitol's Basketball Club v. Barry, 304 F. Supp. 1193 (N.D. Cal. 1969), aff'd, 419 F.2d472 (9th Cir. 1969); Warner Bros. Pictures v. Brodel, 31 Cal. 2d 766, 192 P.2d 949 (1948);Lemat Corp. v. Barry, 275 Cal. App. 2d 671, 80 Cal. Rptr. 240 (1969); Paramount PicturesCorp. v. Davis, 228 Cal. App. 2d 827, 39 Cal. Rptr. 791 (1964); DeHaviland v. Warner Bros.Pictures, 67 Cal. App. 2d 225, 153 P.2d 983 (1944); Rogers Theatrical v. Comstock, 232N.Y.S. 1 (1928); Lumley v. Wagner, 42 Eng. Rep. 687 (1852).

2. CAL. CIV. CODE § 3423(5) (Deering 1984); CAL. CIv. PROC. CODE § 526(5) (Deering1972); 5 A. CORBIN, CORBIN ON CONTRACTs § 1204 (1964); 4 B. WITKIN, SUMMARY OFCALIFORNIA LAW, at 2816 (1964). See supra note 1 and accompanying text.

3. See supra note I and accompanying text.4. See Vanguard Recording v. Kineskin, 276 F. Supp. 563 (S.D.N.Y. 1967); Machen v.

Johansson, 174 F. Supp. 522 (S.D.N.Y. 1959); Foxx v. Williams, 244 Cal. App. 2d 223, 52 Cal.Rptr. 896 (1966); ABC Broadcasting Co. v. Wolf, 52 N.Y.2d 394, 420 N.E.2d 363, 438N.Y.S.2d 482 (1981); Rubin, The Enforcement of Personal Service Contracts, 3 ENT. & SPTS.LAW, No. I at 3 (Spring 1984).

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III. REMEDIES

A. Injunctive Relief

The negative injunction is the most commonly used remedy in theenforcement of personal service contracts.' In certain limited circum-stances, it can be as effective as a mandatory injunction.6 Unfortunately,such an injunction is more often of no practical or economic value to theentertainment employer.

There are two limitations which restrict its usefulness. First, courtshighly scrutinize requests for negative injunctions because of their reluc-tance to inhibit the talent's freedom to pursue a livelihood.7 In Califor-nia, the negative injunction is even more difficult to obtain because ofstatutory prerequisites as well as the standard Lumley requirements.'This results in the courts denying many such injunctions.9 Second, man-agement's primary concern is an economic return on the personal servicecontract and not in preventing the talent's performance for others.' °

B. Damages.

Damages are recoverable against a breaching artist. Such includethe management's right to recover liquidated damages," advances12 andpre-contractual reliance damages.' 3 However, courts have generallybeen reluctant to award damages for lost profits in the area of entertain-

5. For a well argued example of entertainment employee negative injunction, see Bonnerv. Westbound Records, 76 Ill. App. 3d 736, 394 N.E.2d 1303 (1979); Rogers Theatrical v.Comstock, 232 N.Y.S. 1 (1928) (negative covenant not to compete implied into every personalservice contract). See generally Lumley v. Wagner, 42 Eng. Rep. 687 (1852).

6. Paramount Pictures Corp. v. Davis, 228 Cal. App. 2d 827, 39 Cal. Rptr. 791 (1964).7. Machen v. Johansson, 174 F. Supp. 522 (S.D.N.Y. 1959); Vanguard Recording v.

Kineskin, 276 F. Supp. 563 (S.D.N.Y. 1967).8. CAL. LAB. CODE § 2855 (West 1971) (no negative injunction after seven years from

date entering into personal service contract); CAL. CIV. CODE § 3423 (Deering 1984) and CAL.CIV. PROC. CODE § 526 (West 1979) ($6,000 yearly minimum guaranteed compensation forpersonal service contract negative injunction).

9. See supra note 4 and accompanying text.10. Rubin, The Enforcement of Personal Service Contracts, 3 ENT. & SPTS. LAW, No. 1 at

3 (Spring 1984).11. Courts have enforced liquidated damages clauses in entertainment personal service

contracts. However, such a clause may show that the artist's breach can be compensated witha monetary award. This can be used by the breaching performer in arguing that plaintiff hasan adequate remedy at law, and thus, bar a negative injunction. See Madison Square GardensCorp. v. Braddock, 90 F.2d 924 (3rd Cir. 1937). Commonly, liquidated damages are set at anamount equal to the additional compensation a breaching employee obtains from the newemployer, and not at a specific dollar amount. Rubin, at page 3.

12. J. B. Lippincott Co. v. Lasher, 430 F. Supp. 993 (S.D.N.Y. 1977).13. Chicago Coliseum Club v. Dempsey, 265 Iil. App. 542 (1932); Anglia Television v.

Rees, 1971 3 All E.R. (C.A.).

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ment law.' 4 Although, the breach (as well as the proximate/foreseeableinjury to plaintiff) may be undisputed, the difficulty lies in the ability toprove the amount of damages with reasonable certainty.' 5 The tradi-tional view is that lost profit damages are speculative and non-recover-able because it is impossible to predict the success of a film, play, record,book or team with reasonable accuracy.' 6 Recently, however, courtshave begun to relax the speculative defense and allow a broader showingof the certainty of injury. 17

1. Certainty of Damages.

Under the long settled rule of contract remedies, damages for breachof contract must be clearly ascertainable and reasonably certain. Usu-ally, the plaintiff carries this burden of proof.'" However, to avoid theharshness of this rule, courts will shift the burden when the defendant'swrong creates the difficulty in overcoming the uncertainty.19

14. See, e.g., Ericson v. Playgirl, Inc., 73 Cal. App. 3d 850, 140 Cal. Rptr. 921 (1977);Zorich v. Petroff, 152 Cal. App. 2d 806, 313 P.2d 118 (1957); Amaducci v. MetropolitanOpera Ass'n, 33 A.D. 2d 542, 304 N.Y.S.2d 322 (1969). See also Zimmerman, Exclusivity ofPersonal Services: The Viability and Enforcement of Contractual Rights, 19 BEV. HILLS B.Ass'N J. 73 (1985); 2 SIMENSKY & SELZ, ENTERTAINMENT LAW § 21.04, at 21-14 (1983). Seesupra note 1 and accompanying text. For cases denying lost profit damages of an unestab-lished business, see Fredonis Broadcasting Corp. v. RCA, 569 F.2d 251 (5th Cir. 1978), cert.denied, 439 U.S. 859 (1978); Patton v. Royal Indus., 263 Cal. App. 2d 760, 70 Cal. Rptr. 44(1968); Evergreen Amusement Corp. v. Milstead, 206 Md. 610, 618, 112 A.2d 901, 904-05(1955); Cramer v. Grand Rapid Showcase Co., 223 N.Y. 63, 119 N.E. 227 (1918).

15. See supra notes 1 and 14 and accompanying text.16. See supra note 15. See generally Jones v. San Bernardino Real Estate Bd., 168 Cal.

App. 2d 661, 336 P.2d 606 (1959) (plaintiff was denied damages for loss of contracts, businessassociations, and clientele based on a breach of an employment contract and expulsion from alocal realty board); Quinn v. Straus Broadcasting Group, 309 F. Supp. 1208 (S.D.N.Y. 1970)(the moderator of a radio talk show was denied damages for loss of publicity for wrongfultermination of an employment contract).

17. Welch v. U.S. Bancorp Realty and Mortgage Trust, 286 Or. 673, 596 P.2d 947 (1979).The court in Welch stated "the term 'reasonable certainty' as a screening device may not nowbe as favorable a concept for defendants resisting claims of lost profits as it once was underolder decisions of this court." Id. at 704-05, 596 P.2d at 963. For cases allowing lost profitdamages of a new business -venture upon a showing-of reasonable certainty,-see-S. -Jon Kreed-man & Co. v. Meyer Bros. Parking-Western Corp., 58 Cal. App. 3d 173, 130 Cal. Rptr. 41(1976); Vickers v. Wichita State Univ., 213 Kan. 614, 620-21, 518 P.2d 512, 517 (1979)(breach of contract to televise college basketball games); Ferrell v. Elrod, 63 Tenn. 129, 469S.W.2d 678 (1971).

18. D.C. Comics v. Filmation Assocs., 486 F. Supp. 1273 (S.D.N.Y. 1980); 5 A. CORBIN,

CORBIN ON CONTRACTS § 1020, at 164 (Kaufman Supp. 1980).19. Bigelow v. RKO Radio Pictures, 327 U.S. 251, 265 (1946); M. & R. Contractors and

Builders v. Michael, 215 Md. 340, 348-49, 138 A.2d 350, 355 (1958); R. DUNN, RECOVERY OFDAMAGES FOR LOST PROFITS, § 1.4, at 7 (1981); RESTATEMENT OF CONTRACTS § 331(a), at10 (1932).

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It is undisputed that management may recover damages if such canbe proven with reasonable certainty.2" The problem arises in the instantscenarios when management attempts to prove that the breaching tal-ent's absence led to and resulted in lost profits. There is a two step analy-sis to recovering such damages. First, the talent's name and performancemust have value to the employer. Secondly, such loss must be measura-ble with reasonable certainty.

It has long been stated that entertainment personal service contractsare different from standard employment contracts.2' The name of theperformer and the attendant publicity related to his performance are val-uable.22 The star uses this value to achieve greater bargaining leverageagainst the employer. Alternatively, the management employs the per-former's name and publicity for its "marquee value" and box office ap-peal. The loss of the talent's performance is a manifest denial of theemployer's benefit due under the personal service contract. Therefore, itis logical to conclude that the loss of the breaching performer's servicesand name are a substantial detriment to management.

Once the employer establishes the fact of damage with reasonablecertainty, the mere difficulty in ascertaining the amount of damage is notfatal.23 There is no requirement of mathematical precision. Rather, allthe plaintiff needs to show, using the best evidence available, is a reason-able method of measuring the lost value of the breaching performer tothe employer.24

Management counsel should present all the supporting evidence ob-tainable to demonstrate the talent's value to the employer and theamount of the injury resulting from the talent's refusal to perform the

20. See supra notes I and 14-19 and accompanying text.21. Clemens v. Press Pub. Co., 67 Misc. 183, 122 N.Y.S. 206 (1910).22. See, e.g., Ericson v. Playgirl, Inc., 73 Cal. App. 3d 850, 140 Cal. Rptr. 921 (1977);

Lloyd v. Cal. Pictures Corp., 136 Cal. App. 2d 638, 289 P.2d 295 (1955) (court sustained acause of action for breach of contract for denial of screen credit and granted the right torecover for lost publicity and credit); Paramount Prods. v. Smith, 91 F.2d 863 (9th Cir. 1937),cert. denied, 302 U.S. 749 (1937) (plaintiffs recovered damages for breach of contract for plain-tiff's screen credits for writing script used in a film). This principle has long been recognizedin England-see, e.g., Herbert Clayton and Jack Waller, Ltd. v. Oliver, 1930 A.C. 209 (anactor engaged to play one of three principal leads was later cast in an inferior role. Courtstated plaintiff was entitled to lost publicity arising from the lesser billing); Marke v. GeorgeEdwardes, Ltd., (1928) 1 K.B. 269 (C.A. 1927) (an actress promised credit and lead in a playwas awarded damages for lost publicity and denial of opportunity to perform).

23. Larsen v. A.C. Carpenter, Inc., 620 F. Supp. 1084 (E.D.N.Y. 1985); Tull v. Gunder-sons, Inc., 709 P.2d 940 (Colo. 1985); Borne Chem. Co. v. Dictrow, 85 A.D.2d 646, 445N.Y.S.2d 406 (1981); Vickers, 213 Kan. at 620, 518 P.2d at 517; RESTATEMENT OF CON-TRACTS § 336, Comment d (1932); R. DUNN, supra note 19, § 1.4 at 7.

24. See supra note 23 and accompanying text.

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personal service contract. Producers, owners, management executives,marketing/advertising experts and others can provide expert testimonyon the performer's public appeal and market value, as well as furnishopinions as to the losses sustained because of the talent's absence fromthe employer's end-product." Evidence of entertainment custom and in-dustry practice, such as projected advertising and sales revenues, can beoffered to establish the performer's value to the employer. Also, the useof statistical data to measure the popularity and public recognition of thestar can assist in proving the amount of damages.26 Evidence should beoffered concerning the value of plaintiff's product with and without thebreaching performer.27 The extent of damage can be shown by compar-ing similarly situated performers.2" Lastly, the breaching talent's trackrecord of success can be used to predict the likelihood of plaintiff's futurelost benefits because of the talent's refusal to perform.2 9

Referring to the scenarios, management counsel can introduce the

25. See, e.g., M& R Contractors, 215 Md. at 349, 138 A.2d at 355 (which held that reason-able certainty "may often be based upon opinion evidence"); Harsha v. Capital Say. Bank, 346N.W.2d 791 (Iowa 1984) (court allowed expert opinion regarding plaintiff's projected earningshad defendant not breached); Larsen v. Walton Plywood Co., 65 Wash. 2d 1, 390 P.2d 677(1964) (court allowed expert testimony regarding the market structure for establishing dam-ages). But see Broadway Photoplay Co. v. World Film Corp., 225 N.Y. 104, 121 N.E. 756(1919).

26. Evidence concerning the scope of distribution of the work, such as television ratingsurveys, circulation figures for newspapers and magazines, gross earnings for movies, and thenumber of record albums sold, etc., might be considered a relevant factor in determining theproper measure of damages. 2 SIMENSKY & SELZ, supra note 19, § 1.4, at 20-21. See, e.g.,Paramount Prods. v. Smith, 91 F.2d 863 (9th Cir. 1937), cert. denied, 302 U.S. 749 (1937)(plaintiff was allowed to introduce statistical evidence to show life expectancy and future earn-ing potential); Smithers v. Metro-Goldwyn-Mayer Studios, 139 Cal. App. 3d 643, 189 Cal.Rptr. 20 (1983), vacated, -_Cal. 3d -, 696 P.2d 82, 211 Cal. Rptr. 690 (1985), withdrawn onappeal. In Smithers, a 1985 unpublished and uncertified opinion, the Court of Appeal allowedthe introduction of the "television recognition quotient" (a publication which evaluates theperformer's recognition factor with the public) "to establish the extent of plaintiff's damage."Ericson, 73 Cal. App. 3d at 857, 140 Cal. Rptr. at 925-26 (value can be correlated to box officeappeal).

27. See Paramount Prods. v. Smith, 91 F.2d 863 (9th Cir. 1937), cert. denied, 302 U.S. 749(1937) (plaintiff introduced evidence to show the difference in compensation before and afterthe breach). Evidence concerning the before and after effect of the performer's breach,-such asadded revenues, attendance figures and box office gross receipts, might also be considered arelevant factor in determining the proper measure of damages. A marketing device known as"presale" (i.e.: the selling of exploitation licenses to movie before filming to defray productioncosts) might be used to determine lost profit as the difference between the price paid with theperformer and the price without the performer. Meyer & Osman, Production Company Reme-dies for Star Breaches, 1 ENT. L.J. 28 (1981).

28. Unruh v. Smith, 123 Cal. App. 2d 431, 267 P.2d 72 (1954).29. See, e.g., Paramount Prods. v. Smith, 91 F.2d 863 (9th Cir. 1937), cert. denied, 302

U.S. 749 (1937) (support of a claim for damages plaintiff offered evidence of similar personalservice contract to contrast the value plaintiff actually received). Ericson, 73 Cal. App. 3d at

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success record of Heavy Mental's last three albums to show it is reason-ably certain that the fourth album would make plaintiff- employer a com-parable amount of profit. Sports attorneys could establish the publicrecognition and support of Mr. Backer by fan surveys and gate attend-ance. Ms. Starlett's value to management can be proven by asking indus-try experts the value of the film with and without her performance. Allor part of these proposed measurements can be introduced. No one par-ticular piece of evidence is conclusive. Management must compile asmuch supporting data as possible to be successful in proving the amountof damages.

At least one court has recognized the need to expand the rule ofreasonable certainty in the area of entertainment law. In the 1985 uncer-tified decision of Smithers v. Metro-Goldwyn-Mayer Studios,3" the courtheld that a performer's name and its attendant publicity are valuable,certain and compensable to the performer.3 Plaintiff-artist was entitledto $500,000 damages for insufficient star billing. In rejecting the defend-ant's certainty defense, the court stated "it is clear that one who willfullybreaches the contract bears the risk as to the uncertainty or the difficultyin computing the amount of damage."32 A number of witnesses estab-lished that the use of an artist's name has value.33 The court concluded

857, 140 Cal. Rptr. at 925-26 (damages may be calculated in correlation to an artist's knownrecord of successes).

30. 139 Cal. App. 3d 643, 189 Cal. Rptr. 20 (1983). A hearing was granted by the Califor-nia Supreme Court vacating this opinion. - Cal. 3d -, 696 P.2d 82, 211 Cal. Rptr. 690(1985) (California Supreme Court retransferred the case to the Court of Appeals to be recon-sidered in light of the recent decision in Seamen's Direct Buying Serv. v. Standard Oil of Cal.,36 Cal. 3d 752, 686 P.2d 1158, 206 Cal. Rptr. 354 (1984)). In March 1985, the Court ofAppeals in an unpublished opinion reaffirmed its original decision adding only a brief discus-sion of Seamen's and finding it inapposite to the instant matter. As of the time of this writing,a petition requesting certification for publication in the official reporter is pending in the Cali-fornia Supreme Court. For a detailed discussion of the Smithers decision by plaintiff's attor-ney, see, D. Frank, What's in a Name? Maybe a Fortune! (1986) (unpublished manuscript).

31. 139 Cal. App. 3d 643, 645, 189 Cal. Rptr. 20, 22 (1983) (plaintiffs sued MGM forbreach of contract by failing to give plaintiff billing in accordance with plaintiff's personalservice contract; the jury awarded plaintiff $500,000 for defendant's breach).

32. 189 Cal. Rptr. at 24 (citing Donahue v. United Artists Corp., 2 Cal. App. 3d 794, 804,83 Cal. Rptr. 131, 135 (1969)).

33. 189 Cal. Rptr. at 24. Fred Westheimer, of the William Morris Agency, testified therecognition of an artist's name and money go hand-in-hand. Reporter's transcript in Smitherstrial (hereinafter referred to as "RT") 94:18-22. Chester Migden, former National ExecutiveSecretary of the Screen Actors Guild, stated the association of an actor's name to a particularproduct is valuable. Further, he remarked the advertising industry pays very heavily for thename of a star. RT: 359:3-18; 361:17-28; 362:1-11, 27-28; 363:1-4. Bert Remson, CastingDirector, told the court billing is money. RT: 386:28; 387:1-11, 16-19. John Conwell, formerVice President in charge of talent for Quinn Martin Productions, testified he was unable toestimate the probabilities of greater revenues, but in his opinion plaintiff would have earned

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that a jury could reasonably deduce from the evidence that plaintiff-artistwould suffer an economic loss because of defendant's breach, eventhough no witness was able to precisely estimate plaintiff's damages.34

Even though Smithers and many of the herein cited authority areconsidered "artist cases," the underlying factual and policy analysis isarguably applicable to the scenarios which are the subject of this paper.It makes no significant difference; plaintiff-artist's damages are lost futureearnings and plaintiff- employer's damages are lost product revenues.Both factual situations essentially discuss the absence of the artist's namefrom the employer's product due to a breach of contract and resultingdamages therefrom caused plaintiff. However, the courts have tradition-ally favored the talent over the entertainment employer. This could ulti-mately impede the employer's successful application of this new trend.

Smithers, albeit uncertified, is at the cutting edge of the recent trendto relax the certainty rule. It, along with the other authority discussedherein, establishes the courts' growing propensity to exercise their broaddiscretion and allow more evidence regarding the certainty of damages.There is clearly nothing esoteric about the relationship between a talent'sperformance and the enhanced value the same has upon the manage-ment's product. Management's counsel should focus on the lost benefitsof the bargain under the personal service contract by presenting all sup-porting evidence obtainable to demonstrate the substantial value of thetalent's performance to the employer and the resulting injury from therefusal to perform.

2. Avoidable Consequences.

The general rule states that a plaintiff is required to act reasonablyto mitigate damages.35 The defendant has the burden of proving plain-tiff's failure to mitigate, or the amount plaintiff derived from

more money had he received star billing. RT: 427:23-28; 431:13-28; 432:1-7. Thomas Jen-nings, theatrical agent, when called to testify, stated the greater a performer's name recogni-tion means the more money the employer will pay. RT: 442:8-28; 443:1-22. John Randolph,an-actor, stated-at-trial recognition and-income are inseparable, and- plaintiff suffers economicloss for not receiving his promised billing. RT: 640:20-23; 647:3-7, 17-18; 650:7-8; 652:12-22.

34. 189 Cal. Rptr. at 24. Plaintiff's experts were unable to state exactly plaintiff's losses.Rather, each explained on cross-examination the impossibility to provide specific and identifi-able amounts but there was no doubt the absence of plaintiff's name in star billing detrimen-tally affected plaintiff's ability to make more money.

35. See, also, Hardwick v. Dravo Equipment Co., 279 Or. 619, 569 P.2d 588 (1977); PlacidOil Co. v. Humphrey, 244 F.2d 184 (5th Cir. 1957); Steelduct Co. v. Henger-Seltzer Co., 26Cal. 2d 634, 160 P.2d 804 (1945); Sandier v. Lawn-A-Mat Chem. & Equip. Corp., 141 N.J.Super. 436, 358 A.2d 805 (1976); Davis v. Small Business Inv. Co. of Houston, 535 S.W.2d 740(Tex. Civ. App. 1976).

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mitigation.36

There is no case law which discusses an entertainment employer'sresponsibility for mitigating damages when an entertainer refuses to per-form under a personal service contract. Alternatively, the courts havenarrowly defined the entertainment artist's duty to mitigate.37 Practi-cally, management's only mitigation options in the proposed scenariosare (1) to replace the breaching performer; or (2) continue without thetalent. Because of the inherent individuality and uniqueness of every per-formance, there is some question as to whether the employer has anyduty to mitigate, or if the artist is replaced, whether the substitute is trulymitigating the plaintiff's losses.

There are cases, although outside the entertainment field, whichhold that if no replacement employee is available, there is no duty tomitigate.3" There is no substitute when the item contracted for isunique." 9 It is undisputed that the entertainment industry is based uponthe idea of the unique, extraordinary and special performance.' It isequally logical to submit that such performers are not interchangeable.

The entertainment employer has a limited ability to mitigate. A su-perior performer will cost management more money and still not neces-sarily be better suited for plaintiff's particular need. Alternatively, aninferior substitute or a continuation without a replacement will not sat-isfy management's lost contractual benefits. Thus, the employer maysustain damage regardless of its attempt to mitigate.

It seems there is a requirement if a replacement is available. Themeasure of damages is the comparable difference between the value of thesubstitute, if any, and the talent-defendant's promised performancevalue.

36. See supra note 33 and accompanying text.37. See, e.g., Warner Bros. Pictures v. Bumgarner, 197 Cal. App. 2d 331, 17 Cal. Rptr. 171

(1961) (court stated before the employee had a duty to mitigate, there must be a discharge orrepudiation by the employer of the personal service contract); Payne v. Pathe Studios, 6 Cal.App. 2d 136, 44 P.2d 598 (1935) (where the employee is rendering non-exclusive services thereis no duty to mitigate); Parker v. Twentieth Century-Fox Film Corp., 3 Cal. 3d 176, 474 P.2d689, 89 Cal. Rptr. 737 (1970). (The court held the employee's mitigation duty is only to acceptemployment of a comparable or substantially similar nature.)

38. Unruh v. Smith, 123 Cal. App. 2d 431, 267 P.2d 72 (1954). But see, Lemat Corp. v.Barry, 275 Cal. App. 2d 671, 80 Cal. Rptr. 240 (1969).

39. See, e.g., Southern Idaho Pipe & Steel Co. v. Cal-Cut Pipe & Supply Co., 98 Idaho495, 567 P.2d 1246 (1977); Homestake Mining Co. v. Talcott, 161 Cal. App. 2d 566, 327 P.2d59 (1958) (mineral ore); House Grain Co. v. Finerman & Sons, 116 Cal. App. 2d 485, 253 P.2d1034 (1953) (barley).

40. See generally CAL. CIV. CODE § 3423(5); Wilhelmena Motels v. Abdulmajid, 67A.D.2d 853, 413 N.Y.S.2d 21.

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C. Tortious Breach of a Personal Service Contract.

1. Generally.

In every contract, there is an implied covenant of good faith and fairdealing.4 The recent trend is to find a bad faith breach of contractwhich would constitute a tort. This new development provides prospec-tive plantiffs with an alternative remedy to standard contract damagesand injunctions. The advantages of a tortious breach of contract are thatit provides a broader measure of damages,42 avoids some of the strictuncertainty problems associated with contract damages,43 and opens theentire cornucopia of tort remedies including punitive damages."

Although there has been an expansion in the area of bad faithbreach of contract, courts have been unable to establish a uniform stan-dard for determining when a breach of contract is tortious. However, thecourts have recurrently held four types of conduct by breaching defend-ants to be tortious. They are: (1) oppressive; 45 (2) egregious;46 (3) will-

41. See, e.g., , De Laurentiis v. Cinemagrafica de las Americas, S.A., 9 N.Y.2d 503, 215N.Y.S.2d 60 (1961); 3 A. CORBIN, CORBIN ON CONTRACTS § 561 at 228 (1960).

42. To recover tort damages, plaintiff must show defendant's conduct proximately causedhis damage. See generally CAL. CIV. CODE §§ 3300, 3301 and 3333 (Deering 1984); CaliforniaShoppers v. Royal Globe Ins., 175 Cal. App. 3d 1, 221 Cal. Rptr. 171 (1985).

43. In the case of a particularly aggravated breach where the injured party has difficulty inproving damages, the willfulness of the breach may be taken into account in applying therequirement that damages be proven with reasonable certainty. RESTATEMENT (SECOND) OFCONTRACTS § 355 (1977) comment a. See Quigley v. Pet, Inc., 162 Cal. App. 3d 877, 888, 208Cal. Rptr. 394, 400 (1984).

44. The general rule is breach of contract damages are limited to pecuniary loss withoutrecovery for punitive damages. RESTATEMENT (SECOND) OF CONTRACTS § 369 (1977). Aparty is not automatically entitled to punitive damages for tortious breach of an implied cove-nant of good faith and fair dealing. "In order to justify an award of exemplary damages, thedefendant must be guilty of oppression, fraud or malice." CAL. CIV. CODE § 3294 (Deering1984). He must act with the intent to vex, injure or annoy, or with conscious disregard ofplaintiff's rights. Id.

45. See, e.g., Knepper, Review of Recent Tort Trends, 30 Def. L.J. 1, 23 (1981), discussingGolf West of Ky, Inc. v. Life Investors, Co. No. C 138 745 (Superior Court for the County ofLos Angeles, July 10, 1980). In Golf, defendant terminated without cause an exclusive distrib-utorship contract after-plaintiff spent two and one-half years and a substantial sum of money-toestablish outlets for defendant's product. The jury awarded 2.5 million dollars as compensa-tory damages and 6.5 million dollars for tortious breach of an implied covenant of good faith.See Photovest Corp. v. Fotomat Corp., 606 F.2d 704 (7th Cir. 1979) (the Seventh Circuit heldIndiana's oppressive breach of contract tort statute, which is similar to the tortious breach ofimplied covenant of good faith, allowed punitive damages against the defendant who tried toruin plaintiff's business by attempting to force plaintiff to sell his business to defendant at areduced rate); Boise Dodge, Inc. v. Clark, 92 Idaho 902, 907, 453 P.2d 551, 556 (1969) (thecourt stated punitive damages for contract or tort can be found if there is fraud, malice, op-pression or any other satisfactory reason for awarding such damages); Loom Treasures v.Terry Minke Advertising Design, 635 S.W. 2d 940 (Tex. Civ. App. 1982). (The court allowed

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ful;4 7 (4) coercive conduct.4 The courts' stated policy reasons for badfaith breach of contract decisions remain constant. Generally, the courtsseek to deter others similarly situated, provide a remedy for damageswhich otherwise might go uncompensated and protect plaintiffs from se-rious wrongs, tortious in nature, even though not predetermined torts.49

The entertainment scenarios fall into the aforementioned conductclassifications and policy rationale, and thus should be accorded the simi-lar protection of tortious breach of contract. The scenario talent willfullybreached their personal service contracts when the employers were mostvulnerable. The performers' intent was to exploit the enhanced bargain-ing position and coerce modification of the valid and legally bindingpersonal service contracts. The plaintiff-employers' reliance upon recov-ering contract damages is still relatively uncertain and a negative injunc-tion would not solve the economic burden nor compel the contractbenefits. Therefore, management has two options: (1) surrender theirvalid contractual rights under the personal service contracts, or (2) resortto an arguably inadequate choice of remedies. Meanwhile, the breachingperformers avoid the performance required under the personal servicecontracts or they enjoy the success of intentionally extorting additional

punitive damages when breach of contract is malicious, oppressive or fraudulent absent anindependent tort).

46. Kahal v. J.W. Wilson and Assocs., 673 F.2d 547 (D.C. Cir. 1982) (District of Colum-bia Circuit Court held punitive damages and breach of contract were justified upon a showingthat the breach was aggravated by a particularly egregious conduct of the defendant).

47. See, e.g., Morrow v. L.A. Goldschmidt Assocs., 126 Ill. App. 3d 1089, 468 N.E.2d 414(1984) (willful and wanton misconduct is an independent tort that will support punitive dam-ages based upon the breach of contract); Robison v. Katz, 94 N.M. 314, 610 P.2d 201 (1980)(the court will allow punitive damages in a contract action upon a showing of malice, reckless,or wanton conduct by defendant); Henderson v. U.S. Fidelity and Guaranty Co., 620 F.2d 530(5th Cir. 1980), cert. denied, 101 S.Ct. 608 (1980) (the Fifth Circuit held punitive damagescould be awarded when defendant intentionally and willfully breached the contract).

48. See, e.g., Seaman's Direct Buying Serv. v. Standard Oil of Cal., 36 Cal. 3d 752, 769-70,686 P.2d 1158, 1167, 206 Cal. Rptr. 354, 363 (1984) (the court stated tort remedies are avail-able in a contract action where defendant seeks to avoid all liability under a meritorious con-tract by adopting a "see you in court" position without probable cause and with no belief inthe existence of a defense); In re Roy C., 169 Cal. App. 3d 912, 215 Cal. Rptr. 513 (1985) (aparty to a contract may be subject to tort liability, including punitive damages, for use ofcoercion to gain more than is due under the contract); Davis v. Tyee Indus., 58 Or. App. 292,298, 648 P.2d 388, 392 (1982), aff'd, 295 Or. 467, 668 P.2d 1186 (1983) (the court stateddefendant's behavior in breaching the contract bordered on extortion and amounted to a tortof coercion); Adams v. Crater Well Drilling, 276 Or. 789, 556 P.2d 679 (1976) (the court heldthat a party to a contract may be subject to tort liability, including punitive damages if hecoerces the other party to pay more than is due under the contract terms.)

49. Vernon Fire and Casualty Ins. Co. v. Sharp, 264 Ind. 599, 608, 349 N.E. 2d 173, 184-85 (1976). See also Sassaman, Punitive Damages in Contract Actions-Are the Exceptions Swal-lowing the Rule? 20 WASHBURN L.J. 86 (1980).

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contract rights. Whichever, the management needs the alternative of tor-tious breach of contract to balance the scales in these scenarios.

2. Developments in California.

It is well settled in California that the law implies in every contract acovenant of good faith and fair dealing.50 The covenant requires thatneither party do anything which would deprive the other of the benefit ofthe agreement.5'

In the recently decided landmark case of Seaman's Direct BuyingServ. v. Standard Oil Co. of Cal. ,2 the California Supreme Court ac-knowledged, albeit somewhat tentatively, that a non-insurance contractcould be breached tortiously if it contained "characteristics similar" tothose found in insurance contracts.53 The court intimated that a partywhich coerces the other party to pay more money than due under thecontract terms, or attempts to avoid all liability on a meritorious contractby stonewalling the validity of the contract without probable cause, of-fends accepted notions of business ethics and engages in tortiousconduct.

5 4

In a subsequent decision, the court in Wallis v. Superior Court,55

considered the employee/employer relationship in light of the Seaman'scase. In Wallis, the court stated "the characteristics of the insurancecontract which give rise to an action in tort are also present in mostemployer/employee relationships."56 The court held:

for purposes of serving as predicates to tort liability, we find

50. See, e.g., Gianelli Distrib. Co. v. Beck Co., 172 Cal. App. 3d 1020, 1035, 219 Cal.Rptr. 203, 208 (1985); Seaman's, 36 Cal. 3d at 769, 686 P.2d at 1166, 205 Cal. Rptr. at 362;Wallis v. Super. Ct., 160 Cal. App. 3d 1109, 1117, 107 Cal. Rptr. 123, 127 (1984); Quigley, 162Cal. App. 3d at 887, 208 Cal. Rptr. at 399; Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809,818, 598 P.2d 452, 456, 157 Cal. Rptr. 482, 486 (1979).

51. See, e.g., Seaman's, 36 Cal. 3d at 769, 686 P.2d at 1166, 206 Cal. Rptr. at 362; Quigley,162 Cal. App. 3d at 887, 208 Cal. Rptr. at 399.

52. Seaman's Direct Buying Serv. v. Standard Oil Co. of Cal., 36 Cal. 3d 752, 686 P.2d1158, 206 Cal. Rptr. 354 (1984).

53. Seaman's, 36 Cal. 3d at 769-71, 686 P.2d at 1166-67, 206 _CaL Rptr. at 362-63 (ex-tending the validity of the tort of bad faith breach of contract). See Commercial Cotton Co. v.United Cal. Bank, 163 Cal. App. 3d 511, 516, 209 Cal. Rptr. 551, 554 (1985).

54. Seaman's, 36 Cal. 3d at 769-70, 686 P.2d at 1166-67, 206 Cal. Rptr. at 362-63.55. 160 Cal. App. 3d 1109, 207 Cal. Rptr. 123 (1984).56. Wallis, 160 Cal. App. 3d at 1117 n.2, 207 Cal. Rptr. at 127. This tort has also been

discussed in the context of wrongful termination cases. See Tameny v. Atlantic Richfield Co.,27 Cal. 3d 167, 610 P.2d 1330, 164 Cal. Rptr. 839 (1980); Pugh v. See's Candies, 116 Cal. App.3d 311, 171 Cal. Rptr. 917 (1981); Cleary v. American Airlines, Ill Cal. App. 3d 443, 168Cal. Rptr. 722 (1980). See also Koehrer v. Super. Ct., 181 Cal. App. 3d 1155, 226 Cal. Rptr.820 (1986).

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that the following "similar characteristics" must be present in acontract: (1) the contract must be such that the parties are inan inherently unequal bargaining position; (2) the motivationfor entering the contract must be a non-profit motivation, i.e.,to secure peace of mind, security, future protection; (3) ordi-nary contract damages are not adequate because (a) they do notrequire the party in the superior position to account for its ac-tions, and (b) they do not make the inferior party "whole";(4) one party is especially vulnerable because of the type ofharm it may suffer and of necessity places trust in the otherparty to perform; and (5) the other party is aware of thisvulnerability.

These criteria having been met, the party in the strongerposition has a heightened duty not to act unreasonably inbreaching the contract, and to consider the interest of the otherparty as tantamount to his own.5 7

Examining the hypothetical scenarios in light of the five-part test, itis clear that the personal service contract between the entertainment em-ployer and the breaching performer share substantial similarities with aninsurance contract.

In addressing the first element of the Wallis test, the court focuseson the realities of the economic situation to determine whether the par-ties are in an equal bargaining position. 8 At the time of the hypotheticalbreach, management has sunk a huge investment in the product and per-former. Further, plaintiff- employer has limited reasonable mitigation al-ternatives for the breach. This is especially true if plaintiff- employer'sproduction will collapse without defendant's contractual performance.Alternatively, the talent has little risk of legal reprisal from managementbecause of the inadequacy of employer's injunctive and contractual reme-dies. Therefore, there exists a great disparity in the economic situationsand bargaining positions between the entertainment- employer and thebreaching performer.

Second, the plaintiff's motivation for the contract must be non-profit. 59 However, this is a legal fiction. All contracts must be supported

57. Wallis, 160 Cal. App. 3d at 1118, 207 Cal. Rptr. at 129. See Hudson v. Moore Bus.Forms, 609 F. Supp. 467, 478 (N.D. Cal. 1985).

58. Wallis, 160 Cal. App. 3d at 1117, 207 Cal. Rptr. at 128.59. Id., at 1117, 207 Cal. Rptr. at 127. See Commercial Cotton, 163 Cal. App. 3d at 516,

209 Cal. Rptr. 559 (while the defendant-bank had a commercial purpose for accepting deposi-tors funds, the plaintiff-depositor had a non-profit motive which was sufficient to justify findingthe contract to be non-profit motivated). See generally Egan, 24 Cal. 3d at 819, 598 P.2d at456-57, 157 Cal. Rptr. at 486-87.

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by mutual consideration to be enforceable. Whether called benefit, con-sideration, security or peace of mind, a plaintiff is receiving a profitableadvantage under every contract. In Commercial Cotton,' a depositorreceived valuable bank services, protection of his funds and convenienceof financial transactions in exchange for depositing funds in the defend-ant-bank.6 However, the court held this to be a non-profit motive.62

Similarly, an insured is entitled to the services of an insurance agent,protection against casualty and attorney services under an insurance con-tract, but again the motive is deemed non-profit.63 All plaintiffs are thusmotivated to enter into the contracts by the valuable and substantial ben-efits under the contracts. Courts have merely fashioned their argumentsto find a non-profit motive when the basic policies of tortious breach arepresent and the court believes injustice will result if found inapposite.

Assuming the courts will supply a strict construction to the non-profit motive element, the hypothetical personal service contracts have anon-profit motivation. In Quigley,'M the court stated that there is a profitmotive when the reason for the contract "can be assured by ordinarycontract damages."65 However, courts have historically been reluctantto award contract damages for breach of the entertainment personal ser-vice contract by the artist. Thus, there is no assurance of recovering con-tract damages.

In Wallis, the court stated that the non-profit motive exists when"among considerations [for entering into a contract] is the peace of mindand security it will provide .... ",66 An entertainment- employer is not anon-profit venture. However, this is not a requirement. Plaintiff-em-ployer must show some element of non-profit motivation. Managementdoes not make a profit directly from the personal service contract.Rather, plantiff- employer absorbs substantial loss under the contractwith the intent to generate a profit from the end-product. Plaintiff-em-ployer could obtain the same performance without a personal servicecontract. However, the contract is motivated to secure the performanceof an essential artist before the employer makes a significant investmentinto the project in reliance upon the performer's promise. Without thissecurity, the entertainment- employer cannot protect its future. There-

60. 163 Cal. App. 3d 511, 209 Cal. Rptr. 551 (1985).61. Id.62. Id.63. Egan, 24 Cal. 3d at 819, 598 P.2d at 456-57, 157 Cal. Rptr. at 486-87.64. 162 Cal. App. 3d 877, 208 Cal. Rptr. 394.65. Id. at 893, 208 Cal. Rptr. at 403.66. Wallis, 160 Cal. App. 3d at 1117, 207 Cal. Rptr. at 128 (quoting Crisci v. Security Ins.

Co., 66 Cal. 2d 425, 434, 426 P.2d 173, 179, 58 Cal. Rptr. 13, 19 (1967)).

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fore, the purpose of the contract itself is to protect the plaintiff- employerand is not solely motivated by profit.

As for the third element, contract damages are not adequate wherethey offer no motivation whatsoever for the defendant not to breach.67

Tremendous uncertainty exists in obtaining negative injunctions or con-tract damages. Further, an entertainment-employer cannot readily turnto the marketplace to replace the talent because of the inherent unique-ness of entertainment performers. As a result, talent commonly breachtheir personal service contracts knowing that little, if any, legal reprisal isavailable to plaintiff. Plaintiff's choices are to gamble on the traditionalremedies or be coerced into surrendering valid rights. Therefore, en-tertainment- employers' remedies do not require the artist to account forhis actions and are inadequate to make plaintiff whole.

Fourth, there must be a trust between the parties resulting in oneparty's vulnerability. 68 The law imposes on all employees an impliedduty of loyalty to the employer, 69 especially when the employee is essen-tial to the employer. 70 Therefore, a trust relationship exists between theentertainment-employer and the talent-employee.7 ' This is especiallytrue in the hypothetical scenarios. Due to the uncertainty of traditionalremedies, the entertainment- employer must trust the performer to renderthe promised services because the talent has little motivation not tobreach. In reliance upon this trust, the entertainment- employer investstime, effort and costs in preparation for the use of the performer's serv-ices, thereby creating the vulnerability. Performers often will breach atthe time when employers expect the benefits of the personal service con-tract. Thus, employers are extremely vulnerable because of the sunk in-vestment, the lack of alternative remedies and the potential demise of theentire project without defendant's perfomance.

Lastly, the performer must be aware of this vulnerability. 2 The tal-ent not only is aware of the plaintiff- employer's precarious position, butalso intentionally breaches the contract at a time which maximizes theexploitation of plaintiff- employer's vulnerability.

67. Wallis, 160 Cal. App. 3d at 1118, 207 Cal. Rptr. at 129.68. Id.69. Hudson, 609 F. Supp. at 479; Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 249, 67

Cal. Rptr. 19, 22 (1968).70. Dana Perfumes, Inc. v. Mullica, 268 F.2d 936, 937 (9th Cir. 1959); Hudson, 609 F.

Supp. at 479.71. See generally, Commercial Cotton Co. v. United Cal. Bank, 163 Cal. App. 3d 511, 209

Cal. Rptr. 551 (1985) (the bank owed a quasi-fiduciary duty to depositor because of his reli-ance upon bank's honesty and professionalism; this created a trust relationship).

72. Wallis, 160 Cal. App. 3d at 1118, 207 Cal. Rptr. at 129.

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Once the court finds the criteria to have been met, the breachingperformer's extortion-like intent to manipulate the plaintiff and destroyhis enjoyment and benefit of the personal service contract is a breach ofthe covenant of good faith and fair dealing. Defendant has placed hisown interest so far ahead of plaintiff's interest as to offend standard busi-ness ethics and one's own sense of justice. In support of the above analy-sis and in application to the entertainment industry, the court in Smithersv. Metro-Goldwyn-Mayer Studios73 (in an uncertified decision) held that athreat to blacklist an entertainer unless he would forego his contractualrights is a tortious breach of duty of good faith and fair dealing. 4 Thiscase is analogous to the proposed scenarios save the reversal of the em-ployer and talent as plaintiff and defendant. The defendant's threats toblackmail the performer are tantamount to the breaching performer's in-tentional withholding of his performance. The net result of both is thatthe defendants are attempting to use their superior positions to force theplaintiffs to surrender rights granted in valid personal service contracts.

IV. CONCLUSION

Historically, the body of entertainment and sports law favors theartist, performer or athlete over the employer, whether the managementis a multi-national conglomerate or an independent owner. However,talent in the 1980's has achieved more power and success hereto unparal-leled by their predecessors. Because of this new power, star talent canrival the most dominant of entertainment employers. Therefore, the oldrule of protecting entertainers is being eroded by recent trends to expandmanagement's remedies against breaching talent, thereby creating mutu-ality of remedies which reflects the equality of power between employerand talent.

The negative injunction has always had a limited usefulness to theentertainment employer. It has minimal economic value to management

73. 139 Cal. App. 643, 189 Cal. Rptr. 20 (1983), withdrawn on appeal, - Cal. 3d __,

696 P.2d 82, 211 Cal. Rptr. 690 (1985) (the jury awarded plaintiff $300,000 on the tortiousbreach of contract issue). This is an uncertified opinion and cannot be cited as authority as ofthe time of this writing. A hearing was granted by the California Supreme Court vacating thisopinion. __ Cal. 3d __, 211 Cal. Rptr. 690, 696 P.2d 82 (1985) (California Supreme Courtretransferred the case to the Court of Appeal to be reconsidered in light of the recent decisionin Seaman's Direct Buying Serv. v. Standard Oil Co. of Cal., 36 Cal. 3d 752, 686 P.2d 1158,206 Cal. Rptr. 354 (1984)). In March 1985, the Court of Appeal in an unpublished opinionreaffirmed its original decision adding only a brief discussion of Seaman's and finding it inap-posite to the instant matter. As of the time of this writing, a petition requesting certificationfor publication in the official Reporter is pending in the California Supreme Court.

74. Smithers v. Metro-Goldwyn-Mayer Studios, __ Cal. 3d __, 696 P.2d 82, 211 Cal.Rptr. 690 (1985).

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and is increasingly more difficult to obtain. Therefore, employers mustlook elsewhere to achieve satisfaction under personal service contracts.

Traditionally, contract damages were too speculative in entertain-ment and sports industry personal service contracts. However, a recenttrend to relax the speculative damages defense has allowed broadershowings of the fact and amount of injury. Management counsel shouldintroduce all evidence available in support of management's position andincorporate the duty to mitigate into the damage analysis.

Tortious bad faith breach of contract may also provide managementcounsel with an additional alternative remedy. Recent decisions have ex-panded its definition and, as such, it could potentially be applied to thehypothetical scenarios. However, the expansion of the remedy of con-tract damages would render the necessity for this remedy moot exceptfor recovery of punitive damages.